Since starting my fund last year, I’ve met hundreds of founders. When I started out, I knew I wanted to be one of those fabled ‘value-adding’ investors. Yet, it turned out that this investing thing is a lot harder than it looks. You’re facing a lot of uncomfortable situations with founders you really like. You’re constantly fighting mental biases around your decision making. You’re saying no a lot.
Like, really a lot.
That’s super uncomfortable, especially when you were already struggling with turning down those pesky telemarketing guys selling you magazines you don’t even want.
As you move along and learn the ropes, the value you provide to the founders you’re interacting with increases exponentially. You learn how to judge who you want to invest in faster. Your confidence goes up and you start investing based on conviction rather than fomo. You learn how to give clear no’s with actionable feedback on how you came about that decision. Although I’m still struggling with the telemarketing guys, I have gotten a lot better at providing value in my transactions. However, to get there required a lot of messing up and unconscious terrible behaviour on my side.
Therefore, here’s an unreserved apology to the founders I’ve met in year one, along with three examples of things that could have been handled better. Hopefully, there are some learnings for founders and investors alike in here.
Stringing Founders Along
This one is a classic when you’re just getting into investing. You’re uncomfortable with the decisions you make, therefore, you don’t give a clear answer. Instead, you tell founders that you’d like to “follow along” or “check back within a few months”, with the hope another stronger investor commits or something drastically changes in the business (you’re still expecting to pay the same valuation, of course).
As a founder, this is a super bad experience. You want investors that back you out of high conviction in you and what you’re trying to achieve. In other words; you want leaders, not followers. My advice to founders would be to demand a clear answer from a prospective investor. Are you in or out? That’s the only way you can weed out the tourists who’re just waiting to see if something big will happen. If they’re only there to capitalise when things are great, how do you think they’ll behave when you’re business is in trouble?
I’ve been guilty of this several times in my first year. I hadn’t developed the confidence to deliver a clear yes or no, so instead this seemed like the best solution. However, aside from tearing apart your reputation as an investor, you’re also wasting valuable time for founders that could be raising money elsewhere or focusing on growing their company. For this, I am terribly sorry.
Today, we’ve implemented a fixed process for swift and (hopefully) valuable passes with the companies we’re not investing in. This should ensure that no founder wastes their time completely when talking to us. The depth and elaboration of our passes typically varies with the amount of interactions we’ve had with a team. Although that’s probably a topic for another post.
This is perhaps the worst behaviour and sadly the one I see founders complaining about the most. You’ve pitched an investor and things seems to have gone well. The investor promises to get back within a week. However, after that comes radio silence. You check back in, send updated numbers and additional materials, yet the answer never comes. I saw this when raising money for my previous startup and god it’s a shitty feeling. It’s bad enough to have wasted the time on someone not interested, yet getting no tangible feedback is even worse. Not to mention extremely rude by the investor.
Should this happen to you, write no more than one follow-up email if you haven’t heard back. Sometimes, delays happen due to bad admin or a busy schedule. If you still haven’t heard anything by then, move on. It sucks and it’s a waste of time. Yet your time is better spent working on things that actually move your business forward, rather than chasing a phantom. Tell other founders how that investor behaved and everyone comes away stronger. For a full explanation, see my other post on that topic.
It hurts to admit, but I’ve conducted my fair share of ghosting throughout my first year. In my case, there have been two archetypical types of ghosting:
- The “poor admin” ghost: During the time our brand was growing (post-launch in November), I started meeting way more founders than my internal system could handle. Basically, because it didn’t exist. Undoubtedly, I failed to reach out to all founders after meeting them. Today, we have a stronger admin system with a pipeline, deal memos, and reminders, so hopefully, we’ve seen the last of these.
- The “fading” ghost: Sometimes, you meet founders that make you uncomfortable in one way or the other. Sometimes, you’re just not interested in investing. But saying no is hard. Especially when you’re not used to it. So rather than do that, you just let that relationship fade out and assume everything is cool, since they’re not reaching out to you either. Of course, this is not cool. As an investor, you’re always responsible for being the one following up. Period.
To the best of my knowledge, I have never been that prick mentioned in the beginning, who will deliberately ignore you over a longer time period. If you’re reading this and thinking “wait, isn’t that how Christian handled our last interaction?” then please contact me. I will buy you an apology dinner right away. No kidding.
Dear Founder X,
Thank you for meeting with me the other day. I’ve decided not to invest.
All the best,
The above is an actual email I wrote to a founder (again, not proud).
I find that most founders really enjoy getting candid feedback. After all, this is how we improve the fastest as humans. Therefore, giving virtually no reason for not investing in a company can be outright torture as a founder. Now you’re stuck with no investor and no idea on how to improve your business / pitch.
The best way to handle this is to simply ask for more elaborate feedback. If you can get the investor to call you, even better. However, as a disclaimer, I should mention that some of these asks will probably end up with the investor ghosting you. Figure out if you want to invest the energy.
We do this as investors because we can’t quite explain why we’re passing on your company. Often when investors say no, the actual reason has to do with everything from a bad intuition to actually not believing in you as a team. How do you even start to communicate that? So if you have no explainable reason for saying no, why not just get it over with.
To circumvent this, we’ve implemented a clear process for how we pass on companies. We always find clear points on why we’re not investing and we strive to create value in every single pass we send out. Often failing, but we’re slowly improving I believe.
To sum things up; being an investor is not an easy job. Sometimes you feel that you’re crushing people’s dreams for a living. However, this is rarely the case and founders are not precious snowflakes. They can handle your bluntness. Fundraising is a battlefield and when you’re out there you’ll inevitably become scarred. Hiding behind your insecurities, however, is the only way to lose the battle for sure. Nobody likes assholes, even the unconscious ones. So, don’t be an asshole.
I’ve made a lot of mistakes in my first year as an investor. I’m very certain that I will continue to do so in the coming years. However, I’m equally certain that I’ll make lots of improvement as I learn. This piece was my attempt at giving some of my learnings back to founders and investors alike, so hopefully, we can consider at least 1% of my debt repaid. If not, I guess you’ll be stuck with my writings until I’m debt free and net positive.
This piece was written by Christian Jantzen, founding partner of Futuristic.vc.
If you want to follow my writings, my twitter is @chrjantzen.
Futuristic.vc is a early-stage VC firm based in Copenhagen, investing all over the Nordics. We invest in beautiful minds building epic companies. You are welcome to reach out with comments or feedback at email@example.com.